2014 (12) TMI 567 - HC - Income Tax

Rejection of books of accounts and reduction of NP @ 6% against 12% - Held that - The Tribunal has applied a net profit rate of 6% as it was in consonance with the past history of the assessee - in the preceding as well as the following year a net profit rate of 6.75% and 5% respectively was applied by the AO and has also placed on record order for AY 2009-2010 where a net profit rate of 5% has been applied to the assessee there was no error in the discretion exercised by the Tribunal in applying a net profit rate of 6%. TDS deduction on outstanding at the year of FY - Held that - The Tribunal has merely restored the matter to the AO by asking him to verify the transactions and if found to be correct pass orders and held that the appeal is in relation to the disallowance made out of payments of labour charges paid for non-deduction of tax at source under the provisions of section 194C of the Act - disallowance was made by invoking the provisions of section 40(a)(ia) in ACIT Vs. Merilyn Shipping & Transports 2012 (4) TMI 290 - ITAT VISAKHAPATNAM it has been laid down that where the amounts have been paid during the year under consideration itself and nothing is payable at the close of the year no disallowance was warranted u/s 40(a)(ia) of the Act for non-deduction of tax at source out of such amount paid during the year the AO is rightly directed to verify the stand of assessee thus the order of the Tribunal is upheld Decided against revenue. Whether payments were made by the assessee during the year under consideration Held that - Rs. 8, 04, 948/- added on account of work in progress had already been taken into account in the total costs of the works and therefore the addition made by the AO assessing officer was not warranted no question of law arises for consideration regarding the matter Decided against revenue.

Summary

Issues:
1. Net profit rate applied by the Tribunal
2. Interpretation of Section 40(a)(ia) by the Tribunal
3. Addition of work in progress by the assessing officer

Analysis:

Issue 1: Net profit rate applied by the Tribunal
The High Court was presented with the challenge against the order of the Income Tax Appellate Tribunal (ITAT) regarding the net profit rate applied on the assessee's gross receipts for the assessment year 2008-09. The assessing officer had initially applied a net profit rate of 12%, which was reduced to 6% by the Tribunal. The Court noted that the Tribunal's decision to apply a net profit rate of 6% was based on the past history of the assessee. The Court examined the consistency in applying net profit rates and found that in the preceding and subsequent years, the assessing officer had applied rates of 6.75% and 5% respectively. Therefore, the Court upheld the Tribunal's decision on the net profit rate, stating that there was no error in the discretion exercised by the Tribunal.

Issue 2: Interpretation of Section 40(a)(ia) by the Tribunal
Regarding the interpretation of Section 40(a)(ia) of the Income Tax Act, the Tribunal directed the assessing officer to verify the transactions related to non-deduction of tax at source for payments of labor charges. The Tribunal referred to the Vishakhapatnam Special Bench decision, which stated that if payments were made during the year itself and nothing was payable at the end of the year, no disallowance was warranted under Section 40(a)(ia). The Court agreed with the Tribunal's decision, emphasizing that the assessing officer should verify whether the payments were made during the relevant year. The Court found no reason to interfere with this finding, as the Tribunal left the verification process to the assessing officer.

Issue 3: Addition of work in progress by the assessing officer
The assessing officer had made an addition of a specific amount on account of work in progress, which was later deleted by the Commissioner of Income Tax (Appeals) and affirmed by the Tribunal. The Court observed that the addition made by the assessing officer was not warranted, as the amount had already been considered in the total costs of the works. The Tribunal noted that the department's representative failed to challenge the findings regarding this addition. The Court found it unnecessary to delve into this issue extensively, as the addition had already been accounted for in the total costs. Consequently, the Court answered the questions of law against the revenue and disposed of the appeal accordingly.

Overall, the High Court upheld the Tribunal's decisions on the net profit rate, interpretation of Section 40(a)(ia), and addition of work in progress, finding no substantial question of law to be adjudicated upon.